In the prior, related applications, such as PCT International Application No. PCT/US13/59558, Applicant disclosed various innovations related to electronic trading and computer-implemented platforms/infrastructure to facilitate improvements in electronic trading. One goal of such innovations is to reduce or deter predatory trading behavior so as to maintain a fair marketplace for all participants big or small. In particular, it is one object of those innovations and the present invention to minimize or eliminate information leakage and the use of the same in unfair trading strategies such as order book arbitrage or latency arbitrage.
For example, as previously explained, in the U.S. there is no such thing as a single national security exchange in a single location—instead, a number of security exchanges exist and operate at different locations. Since numerous trades are executed at some or all of these exchanges at any given moment and it takes time for market data updates to propagate among the exchanges, the order books of all the exchanges cannot be perfectly synchronized and updated at all times. High-speed traders can take advantage of quote instabilities, when momentary discrepancies exist among order books of different exchanges for the same security, to conduct trades at stale price points and therefore reap benefits to the disadvantage of other market participants. Furthermore, these momentary discrepancies can be anticipated before they actually occur by, for example, receiving and processing real-time low-latency market data feeds that permit a high-speed market participant to understand developing conditions that typically precede, or are characteristic, of quote instability.
For another example, the conventional approaches by which order books are managed could also lead to information leakage. High-speed traders can use a number of tactics such as small orders or non-firm orders (e.g., “indications of interest,” “discretionary orders,” “negotiable orders,” “non-firm quotations,” or “immediate-or-cancel orders”) to probe the order books of the exchanges. Once a trade confirmation or other feedback from an exchange indicates the existence of a large, hidden or non-displayed order, the high-speed traders could place additional trades to take advantage of such order.
As one technique for protecting a trading party from predatory trading strategies employed by some market participants, especially during certain periods when quotes for a particular security are experiencing rapid changes or transitions, Applicant's co-owned U.S. patent application Ser. No. 14/799,975, published as U.S. Patent Application Publication No. 2016/0055581A1 (the '581 publication) entitled “Dynamic Peg Orders in an Electronic Trading System,” filed on Jul. 15, 2015, describes embodiments that facilitate and support a new type of trading orders called dynamic peg orders (DPOs) whose booking and execution behaviors can be dynamically varied in response to environmental market conditions.
Pursuant to certain predefined rules, the DPOs may be allowed to trade at more aggressive price levels if the market is relatively stable, and the DPOs can only trade at less aggressive price levels when the market is determined to be unstable. Environmental market conditions, such as price movements at other trading venues, may be monitored and used as a basis for varying and/or limiting price discretion for the qualified orders during booking and/or execution. Because the actual price at which a DPO can trade typically depends on the market conditions and may be determined only at the time of trading, the DPOs are usually not displayed. As such, they contribute very little, if at all, to the information available to the market participants.
Applicant's co-owned U.S. patent application Ser. No. 14/322,996, published as U.S. Patent Application Publication No. 2015/0073967A1 (the '967 publication) entitled “Transmission Latency Leveling Apparatuses, Methods and Systems,” filed on Jul. 3, 2014, describes some disadvantages of a market in which little or no information about orders is available to the traders. The '967 publication also describes, however, some disadvantages of a market in which all orders are displayed, and describes an electronic trading system that can implement a semi-lit market. In a semi-lit market described in the '976 publication, more or less information may be made available to a trader based on the price and/or size of the trader's order. This technique cannot be easily applied to a DPO, however, because, as noted above, the actual price at which a DPO can trade typically depends on the market conditions and may be determined only at the time of trading. Each of the '581 publication and the '967 publication is incorporated herein by reference in its entirety.